The Kansai Electric Power Company (9503) FY2026 Q3

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Executive Summary

Despite a decline in revenue, the Company secured an increase in ordinary income through improved operating margin and expanded non-operating income. Revenue was ¥29491.2B (-6.5% YoY), operating income was ¥3877.8B (-3.0%), ordinary income was ¥4629.1B (+1.5%), and net income was ¥3443.5B. Operating income declined by less than the rate of revenue decline, resulting in an improvement in the operating margin to 13.1%. The primary factors behind the increase in ordinary income were a ¥340.7B foreign exchange gain and a ¥280.3B equity-method investment gain, indicating a high degree of reliance on non-operating factors.

Factors Affecting Performance

【Revenue】Revenue decreased 6.5% YoY to ¥29491.2B, representing a contraction in line with the full-year forecast of ¥40500B (-6.6% YoY). The Q3 cumulative progress rate was 72.8%, requiring approximately ¥11009B in revenue in Q4.

【Profit and Loss】Operating income was ¥3877.8B (-3.0% YoY), representing a decline smaller than the rate of revenue decline, and the operating margin improved to 13.1%. Ordinary income increased to ¥4629.1B (+1.5%) due to expanded non-operating income. Non-operating income expanded to ¥1266.9B. Foreign exchange gains were ¥340.7B, an increase of approximately ¥148.8B from ¥191.9B in the prior year, while equity-method investment gains were ¥280.3B, up from ¥191.2B in the prior year; both contributed to the increase. Meanwhile, interest expense rose approximately 23% YoY to ¥312.8B, indicating an increase in the interest burden. The ¥630.1B gain on the sale of shares in subsidiaries recorded in the same period of the prior year was absent in the current period, and profit before tax decreased YoY to ¥4643.0B. Net income was ¥3443.5B, while net income attributable to owners of the parent was ¥3402.0B, both below the prior-year levels primarily due to the absence of one-time factors. In conclusion, the Company recorded a decline in revenue and operating income but secured an increase in ordinary income through expanded non-operating income, resulting in an ordinary income structure characterized by declining revenue but increasing ordinary income.

Key Financial Indicators

【Profitability】The operating margin was 13.1%, improving from approximately 12.7% in the same period of the prior year. The ordinary income margin rose to approximately 15.7%, supported by expanded non-operating income. The net profit margin, based on income attributable to owners of the parent, was approximately 11.5%. 【Cash Quality】Cash and deposits were ¥7136.1B, down ¥2287.8B YoY. Accounts receivable were ¥3939.3B and accounts payable were ¥1554.2B, with both declining and working capital being compressed. 【Investment Efficiency】Annualized ROE was 13.4%, supported by both an expansion in net assets (+¥3172.8B YoY) and the level of earnings. Total assets were approximately flat at ¥96909.3B, and asset efficiency remained at a relatively low turnover rate due to the capital-intensive nature of the business. 【Financial Soundness】The equity ratio rose to 35.3% from 31.8% in the prior year. Current assets of ¥17292.3B exceeded current liabilities of ¥15035.3B. Non-current liabilities were substantial, including long-term borrowings of ¥22634.1B and bonds of ¥13804.4B, reflecting a financial structure characteristic of a capital-intensive business.

Cash Flow Analysis

Although detailed disclosures for the cash flow statement are unavailable, changes in the balance sheet provide insight into fund flows. Cash and deposits decreased ¥2287.8B YoY to ¥7136.1B, while investments and other assets increased ¥1888.9B to ¥20219.1B. This movement suggests that some funds shifted from cash to investment assets. Accounts payable decreased ¥787.8B, while accounts receivable also decreased ¥1025.1B; the offsetting movements limited the impact on working capital. Bonds decreased ¥702.0B, indicating a reduction in liabilities, while retained earnings increased ¥2735.1B and total net assets expanded ¥3172.8B. Overall, the Company appears to have allocated funds by using accumulated net income to partially repay liabilities and increase investment assets, while its cash balance declined.

Earnings Quality

The increase in ordinary income resulted from a structure in which expanded non-operating income offset the decline in operating income. Accordingly, earnings quality should be evaluated separately from any strengthening of recurring core operating earnings. Of the ¥1266.9B in non-operating income, the ¥340.7B foreign exchange gain and ¥280.3B equity-method investment gain are highly volatile items dependent on market conditions and the performance of affiliated companies. Meanwhile, interest expense increased to ¥312.8B, indicating structural changes on the cost side arising from the interest burden. No extraordinary gain comparable to the ¥630.1B gain on the sale of shares in subsidiaries recorded in the same period of the prior year was recognized in the current period, and profit before tax decreased YoY. Comprehensive income was ¥3839.0B, representing a certain divergence from net income attributable to owners of the parent of ¥3402.0B, with other comprehensive income items such as ¥418.9B in valuation differences on securities contributing to the difference. Overall, the concentration of factors supporting ordinary income in non-core operating items warrants attention when assessing earnings sustainability.

Performance Forecast and Guidance

The Q3 cumulative progress rates against the full-year forecasts were 72.8% for revenue, 86.2% for operating income, and 94.5% for ordinary income. Operating income and ordinary income were therefore ahead of the standard Q3 cumulative progress pace of 75%. This is because the full-year forecasts incorporate a certain degree of decline in earnings and an increase in expenses during the second half, with revenue forecast at ¥40500B (-6.6% YoY), operating income at ¥4500B (-4.0%), and ordinary income at ¥4900B (-7.8%). Based on reverse calculations, the operating income required in Q4 is approximately ¥622B, corresponding to an operating margin of approximately 5.6%, implying a significant decline from the Q3 cumulative margin of 13.1%. Going forward, fuel and electricity procurement costs, supply-demand trends, and foreign exchange movements will determine the profit margin and the degree of achievement of the full-year forecasts from Q4 onward.

Shareholder Returns

The full-year dividend forecast is ¥75.00 per share. Compared with the ¥30.00 dividend paid through Q2, the year-end dividend is scheduled to be ¥45.00. The payout ratio against full-year forecast EPS of ¥323.14 is approximately 23.2%, indicating a limited earnings-based return burden. Q3 cumulative net income attributable to owners of the parent of ¥3402.0B reached 94.5% of the full-year forecast of ¥3600B, representing a sufficient level to cover the annual dividend. Retained earnings increased ¥2735.1B YoY to ¥22016.2B, indicating continued capital accumulation available as a source of dividends.

Risk Factors

1. Foreign Exchange and Fuel Price Volatility Risk: The ¥340.7B foreign exchange gain, one factor behind the increase in ordinary income, is highly volatile and could become a downward pressure on ordinary income if conditions reverse. Fluctuations in fuel prices and wholesale electricity prices may also affect earnings.

2. Interest Rate Increase Risk: Interest expense increased YoY to ¥312.8B. Given the outstanding balances of ¥22634.1B in long-term borrowings and ¥13804.4B in bonds, an increase in interest rates could raise interest payments and become a medium- to long-term factor pressuring earnings.

3. Declining Cash Balance and Capital Allocation Risk: Cash and deposits decreased ¥2287.8B YoY to ¥7136.1B. Although current assets exceed current liabilities, the trend in the cash balance requires monitoring if investment, debt repayment, and shareholder returns proceed simultaneously.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (Utilities)

Profitability and Returns

The Company's operating margin and net profit margin are at levels that can be confirmed within the industry; however, as median data is not yet available, no definitive statement regarding its relative positioning should be made.

Growth and Capital Efficiency

Revenue declined YoY, and its relative positioning within the industry will be evaluated after median data has been expanded.

※Source: Company research

Key Points from the Results

1. While revenue decreased 6.5% YoY, the operating margin improved to 13.1%. Maintaining profitability despite the revenue decline is a key feature of the results.

2. The increase in ordinary income (+1.5% YoY) was highly dependent on non-operating factors such as foreign exchange gains and equity-method investment gains. Operating income alone declined 3.0% YoY, an important point for understanding the earnings structure.

3. Based on reverse calculations from the full-year forecast, the Q4 operating margin is assumed to be approximately 5.6%, a significant decline from the Q3 cumulative margin of 13.1%. Trends in second-half expenses and procurement costs will therefore determine the final full-year results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,189–¥3,380 at ±1% cost of equity, and ¥3,277–¥3,290 at ω±0.1.

Notes:

• As the progress of net income against the full-year forecast (94%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with leading progress tend to exceed forecasts; adjustments may be excessive for businesses with strong seasonality).
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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